Scams in securities markets and Role of SEBI

Group Members
Tara Jain Payal Kothari Pramil Malde Sagar Nagda Raj Padharia 11 12 13 14 15

HARSHAD MEHTA

THE BIG BULL

Started his career with New India Assurance Co. Quit his job in 1981 to become sub-broker. Went bankrupt in 1982 & recovered soon to become stronger.

Went on to become one of the most successful broker- The Rags To Riches Story, thereby earning the nick name of THE BIG BULL

WHAT WAS THE SCAM ALL ABOUT

Diversion of funds

Use of Ready Forward(RF) to maintain Statutory Liquidity Ratio(SLR) Creative Accounting Intra-day Trading

EXPLOITING THE LOOPHOLE IN THE BANKING SYSTEM

He triggered in Bombay Stock Exchange in the year 1992 by trading in shares at a premium across many segments.

Taking advantages of the loopholes in the banking system, Harshad and his associates triggered a securities scam diverting funds to the tune of Rs4000 cr from banks to stockbrokers between April 1991 to May 1992.

HIS FAVORITE STOCKS INCLUDED

ACC APOLLO TYRES REPLIANCE TATA IRON AND STEEL CO.(TISCO) BPL STERLITE VIDEOCON.

KETAN PAREKH Ketan Parekh

C.A by profession - comes from broking family background

Popularly known as Pentafour Bull

Known for K-10 series of stocks

THE K-10 STOCKS KAmitabh Bachchan Corporation Limited (ABCL) Mukta Arts Tips Pritish Nandy Communications HFCL Global Telesystems Zee Telefilms Crest Communication Penta Media Graphics

WAYS HE FUNDED THE SCAMS

The Pay Order Route Borrowing from Madhavpura Mercantile Co-operative Bank.

HOW THE SCAM BROKE OUT?

His modus operandi for raising funds worked well as long as share prices soared up but it reversed when the markets started crashing in March,2000. K-10 stocks declined by 67% Liquidity problems CSE payment crisis

IPO SCAM
y y y y y y

Current account opened Sole person authorised Identity disguised Multiple accounts opened Huge funds transferred Accounts opened in fictitious name

ROLE OF DEPOSITORY PARTICIPANTS

y

Suzlon Energy IPO: Rs 1,496.34 cr (September 23-29, 2005)

Jet Airways IPO: Rs 1899.3 crore (Feb 18-24, 2005)

National Thermal Power Corporation IPO Rs 5,368.14 crore (Oct 7-14, 2004).

Tata Consultancy Services IPO: Rs 4,713.47 crore

FACTORS THAT FACILITATED THE SCAM

Photographs not obtained Proper introductions not obtained Signatures not taken in the presence of bank official Failure to independently verify the identity and address of all joint account holders

Directors identity/ address not verified Customer Due Diligence done by a subsidiary

SEBI

ESTABLISHMENT OF SEBI
y

The Securities and Exchange Board of India was established on April 12, 1992
PREAMBLE

The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as ..to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto

Role of SEBI in Indian Capital Markets

1. 2. 3. 4. 5.

Power to make rules for controlling stock exchange To provide license to dealers and brokers To Stop fraud in Capital Market To Control the Merger, Acquisition and Takeover the companies To audit the performance of stock market

6. To make new rules on carry - forward transactions 7. To create relationship with ICAI 8. Introduction of derivative contracts on Volatility Index 9. To Require report of Portfolio Management Activities 10. To educate the investors

ACTIONS OF SEBI

The trading cycle was cut short from a week to a day

Introduced forward trading in the form of exchange-traded derivatives

Bars 26 Ketan Parekh 'conduits'

ACTIONS OF SEBI

Barred 24 key operators, including Indiabulls and Karvy Stock Broking

Banned 12 depository participants from opening fresh accounts for their involvement in the Initial Public Offer scam.

Banned 85 financiers from capital market activities.

MEASURES TO PREVENT SCAM

Measures to prevent scams

Strengthen the legal and administrative framework of public governance system

Stricter norms for corporate governance to be set by bodies like Association of CAs a. Bringing transparency b. Bringing accountability

Criticism of SEBI OF SEBI CRITICISMS

y

Only priority was to prevent a fall in stock prices.

y y

Banned short sales and increased margins Fired all broker directors from the Bombay Stock Exchange and Calcutta Stock Exchange

Launched an inquiry into their alleged short sales.